In summary

Blue Flame Medical alleges the collapse of its $609 million mask deal with California has trashed the reputations of its politically-connected founders and led to cancellation of numerous other contracts. 

The collapse of its deal to sell California $609 million worth of N95 masks has caused a medical supply company “enormous harm,” trashing the reputations of its politically-connected founders and triggering death threats, criminal investigations and cancellation of numerous contracts, according to a new lawsuit.

The allegations are contained in the suit Blue Flame Medical filed today against Chain Bridge Bank, a Virginia-based bank that was involved in a $456.9 million wire transfer from the state of California to Blue Flame.  

Bank officials “abruptly and without basis contacted California government officials after  receiving the funds for the transaction and wrongfully suggested to them that Blue Flame was a fraud,” the complaint says. 

“As a result of Defendants’ intentional, reckless, and negligent conduct, California panicked, the  payment  was reversed or otherwise returned to California, and Blue Flame’s transaction with California was torpedoed.”

Rich Danker, a vice president of Chain Bridge Bank, responded to the suit with a short statement saying “the bank acted properly and fulfilled its legal and regulatory responsibilities.”

The lawsuit is the latest turn of events in California’s chaotic quest to obtain supplies to manage the coronavirus pandemic. Amid soaring demand for medical masks and a global shortage of supplies, the state scrambled in March and April to ink huge contracts with vendors who claimed they could deliver high-grade N95 masks. Many of them — including Blue Flame — were brand new companies or inexperienced in the medical supply trade.

CalMatters revealed the collapsed deal with Blue Flame in May, after obtaining copies of checks, wire transfer receipts and government emails through a public records request. The documents showed that the state authorized the enormous expenditure — intended as a 75% down payment on the total order — and then abruptly reversed course within hours of wiring the money.

In a subsequent legislative hearing, state Treasurer Fiona Ma said that she asked for the state’s money to be returned after executives from two banks involved in the wire transfer alerted her that they were concerned the transaction might be fraudulent. 

As a result of the warning by Chain Bridge Bank, Blue Flame asserts in its lawsuit, “governmental law enforcement agencies have commenced investigations concerning Blue Flame and the transaction. Moreover, reports of the breakdown in the deal between Blue Flame and California caused Blue Flame to be wrongfully typecast as a price gouger for critical medical supplies.”

The lawsuit details personal and professional ramifications for Blue Flame’s founders, who are both Republican political operatives. It says they both have received death threats following press coverage of their unraveled deal with California. 

John Thomas, a political strategist based in Southern California, “was fired from his job as a  radio commentator as a result of the intense negative press coverage resulting from the  California transaction and has not been invited back to the cable news network on which he  previously appeared on a regular basis,” the suit says. 

Mike Gula, a GOP fundraiser in Washington, D.C., closed his political consulting business after reaching the massive sales deal with California, the suit says, and is now suffering “from being  baselessly labeled a fraudster.” Other government agencies have canceled deals with Blue Flame, the suit says, and Gula “has been rejected by other banks from opening new accounts.”

The state of Maryland canceled a contract with Blue Flame in early May, saying it failed to deliver masks and ventilators the state had ordered. Blue Flame has since delivered some of the ventilators, the Washington Post reported, and is asking Maryland to restore its $12.5 million order.

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Laurel covers California politics for CalMatters, with a focus on power and personalities in the state Capitol. She's been included in the Washington Post’s list of outstanding state politics reporters...